How to Generate Passive Income with a High-Yield Bank Account

What is Passive Income?

Passive income is money that you earn on a regular basis with little to no effort required to maintain it. It is a way to make your money work for you, rather than you having to work for every dollar.

What is an easy way to generate passive income?

One of the easiest ways to generate passive income is by opening a high-yield bank account, even if you only have $1000. Unlike traditional savings accounts, high-yield bank accounts offer significantly higher interest rates, allowing your money to grow at a much faster pace.

How much interest can I earn with a high-yield bank account?
Interest rates vary by bank, but you can typically earn anywhere from 1% to 2% on your money, compared to the national average of 0.05% for traditional savings accounts. When it comes to large banks, Capital One consistently outperforms the competition by offering a 4.00% interest rate for the 360 Performance Savings account. 

Let’s compare the growth of $1,000 in a bank account with 0.5% interest versus 4% interest over a period of one year.

At 0.5% InterestInitial Amount: $1,000
Interest Rate: 0.5% per year
Interest Earned: $1,000 * 0.005 = $5
Total Amount After 1 Year: $1,000 + $5 = $1,005

At 4% InterestInitial Amount: $1,000
Interest Rate: 4% per year
Interest Earned: $1,000 * 0.04 = $40
Total Amount After 1 Year: $1,000 + $40 = $1,040

So, after one year, with 0.5% interest, you would have $1,005, and with 4% interest, you would have $1,040. That is a $35 per year difference! It might not seem like much, but when you become a millionaire and add three zeros to that, $35,000 is significant!

Here’s a graph showing the growth of $1,000 in a bank account with 0.5% interest versus 4% interest over a period of five years:

And for fun, let's look at the same graph for $1,000,000. 

Is it safe to put all my money in a high-yield bank account?
FDIC insurance, provided by the Federal Deposit Insurance Corporation (FDIC), protects depositors’ money in the event of a bank failure. Here are the key points:

• Coverage Limit: The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category.
• Types of Accounts Covered: This includes checking accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs).
• Not Covered: Investments such as mutual funds, annuities, life insurance policies, stocks, and bonds are not covered by FDIC insurance.

This insurance ensures that even if your bank fails, your deposits up to the insured limit are protected.

Check out some of the best high-yield savings accounts available right now.

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